Maria Sookdeo, ACCA manager partner relationships and communications
According to the Association of Caribbean States (ACS), in Latin America and the Caribbean, small and medium enterprises (SMEs) represent 90-95 per cent of the establishments/businesses created in the manufacturing, trade and services sectors. They generate approximately 85-90 per cent of the jobs, and contribute roughly 30-40 per cent of Gross Domestic Product (GDP) of the countries of the region. For this reason, SMEs have continued to be one of the most important sectors for Caribbean countries. SMEs represent one of the most realistic vehicles for confronting the challenge of unemployment and poverty in many countries because they create the link that forms the full circle between productive enterprises and sectors, and offer increased potential for locally relevant product and service innovation.
There are multiple drivers across areas of business activity that SMEs can develop in order to increase their productivity and innovation is one of those. How effective a business is in tapping into these drivers can be the difference between moderate growth and high growth. A major component of innovation is digital transformation. In its recent report ‘Scale-up success: What do SMEs need to supercharge their growth,’ ACCA examined how more SMEs could experience wider success by adopting some of the practices of businesses with higher growth ambitions – one of these being digital transformation.
Technology adoption is essential for SME survival. This often requires additional resources to address ever-greater complexity in the operation of business processes. Integrating scalable technology adoption into a growth strategy can make a significant contribution to increasing SMEs' growth potential. So, if digital transformation is so great, why aren’t more SMEs doing it? The answer: because they are discouraged by the perceived effort, cost and challenges involved. Even while understanding that all of the benefits of digital transformation are within reach, including the opportunity to jump ahead of the vast majority of market competition, SMEs are still unwilling to take the next step. This in itself poses challenges to SMEs who are wary of budget limitations and perceived costs as a significant barrier to improvement. Technology investment is viewed as expensive and uncertain, with a long road ahead to recover value.
Additionally, another challenge for SMEs embarking on their digital transformation journey is one of leadership: most SMEs are not scaled to have in-house technology leadership resources to devote to planning, management and implementation. They are forced to allocate resources away from core operations, which creates two problems: those resources likely don’t have the required expertise, and reallocation measurably cuts into day-to-day and quarterly performance.
As part of an effective approach towards growth or scaling-up, SMEs should look to build a strategy which enables a growth culture to be instilled across all areas and activities in their organisations. In the design of such a strategy, business leaders first need to define a clear purpose and vision across their organisation. This should be used to inform the development of three key areas: the business’s organisational structure, outlook and behaviours.
Collectively, a strategy that addresses these areas could significantly contribute towards developing the mechanisms within an SME that enable growth and sustainability to occur.
Top three recommendations for SME growth and survival:
Growth can come at any stage of an SME's lifecycle. This requires business leaders to think strategically about the steps they can take to enable it.
1. Leadership must define a growth culture – When staff share and are committed to an organisation's purpose and vision, they are more likely to see its future as their own.
2. Establish a governance framework to help build resilience – Growth prospects can be supported if SMEs build a governance structure from the outset of their business journey.
3. Continue developing management team alongside business growth – Those founders who seek to retain control over all aspects of their business may run into trouble as complexity increases.
In summary, SMEs that scale-up come in all shapes and sizes but the most successful are those that are able to articulate a purpose and vision across all levels of their organisation and keep abreast of the changes in the industry and meet those changes head-on. This can feed into the creation of a growth culture, which amongst other benefits, can provide them with a greater ability to overcome the barriers towards progress and survive in a future that is inevitably digital.